What Exactly is a Digital Currency?
It is factual that the world is going digital everyday and there is need for adaptation. SBI Media, a Nigeria based Media agency takes a look at digital currencies to enable us to get prepared for the ‘new normal’
Forget the hype, the digital currency revolution is real. Whether we are part of it or not, it is and will have an impact on our businesses and lives directly or indirectly.
So what exactly is a cryptocurrency/digital currency such as Bitcoin, Ethereum or Litecoin?
Digital currencies are simply soft or computer money created, distributed in a decentralized process through the solving of complex mathematical problems or difficulty.
Cryptocurrencies run on a fundamental technology called ‘blockchain’. This is simply a public digital ledger or record that shows all the transactions in a digital currency in real time from its inception.
So as a stark difference to a fiat currency such as Dollar or the Naira, a new digital currency is not created by simply printing of new notes by Central Banks or issuance of loans by banks but in a self-automated process when new transactions are processed through a process called- mining.
You might have heard that digital currencies are more or less bubbles because of their skyrocketing prices and that they have no intrinsic value when compared to stocks, bonds or even real estate and therefore they are not really a store of value.
However, these criticisms are often oversimplified and out of context.
For example, the price of genuine digital currencies is determined by demand and supply and not prices set by any Central Bank Governor or an authoritarian government. Secondly, a cryptocurrency such as Bitcoin has a finite number of coins that will ever be mined (created) which is 41 million. So the scarcity of the asset makes it valuable like gold.
While many digital currencies might be fraudulent as it is also common with many companies who manipulate their share prices, do not pay dividends and their business are not often viable to increase their intrinsic value.
Due diligence and education is required before getting involved in digital currency investment.
Next week, we will discuss the applications of cryptocurrencies to the business’s world.
SBI Media is a next generation media agency built on the culture of bravery, thought leadership and innovation. Serving a diverse clientele of technology, aviation, automobile, telecoms, eCommerce, FMCGs financial services and allied industry.